People rely on any number of strategies when they try to figure out what is going to happen in the future.

They might read reports and consult experts. Or analyze quantitative and qualitative data. Or study history and use past trends as a roadmap to future patterns.

No matter which method they choose, however, it seems like those who are trying to discern the financial outlook for that large segment of the population that is nearing its "golden years" keep reaching the same unsettling conclusions.

As Greg Ip at the Wall Street Journal's Real Time Economics blog puts it, "Spendthrift Boomers Face [a] Perilous Retirement: McKinsey."

A pillar of economics is the life-cycle theory of consumption. It holds that an individual saves little as a young adult, a lot in his middle ages, and not at all when he retires.

A new study finds that the baby-boomer generation — the 79 million Americans born between 1945 and 1964 — has broken that rule with a vengeance and are ill prepared for retirement as a result.


The study, by the McKinsey Global Institute, the think-tank arm of the consultants McKinsey & Co., carefully examined the saving behavior of various generations. The “silent” generation, the 52 million Americans born from 1925 to 1944, followed the classic pattern closely, with their household savings rate rising from below 15% in their early 20s to about 30% in their late 40s. But that pattern is almost absent for early boomers, those born 1945 to 1954; their saving rate tops out about 20%; and it’s completely absent for late boomers, those born 1955 to 1964, whose saving rate so far has remained stuck at around 10%.

“Our analysis shows that the Boomers’ missing savings peak accounts for most of the collapse in the U.S. household saving rate from its peak of over 10 percent in themid-1980s to around 2 percent today,” write the report’s authors, Diana Farrell, Eric Beinhocker, Ezra Greenberg, Suruchi Shukla, Jonathan Ablett, and Geoffrey Greene.

There are two reasons for the collapse in their saving: “the ‘wealth effect’ from asset appreciation and increased access to credit.” During boomers’ lifetimes, the proportion of people in their 50s with mutual funds rose from 14% to 64%, while the share of households with mortgages almost doubled.

The net effect, said the report, is that boomers carry far more debt than other generations. Because of inadequate saving, two-thirds of baby boomers are unprepared for retirement, defined by McKinsey as able to sustain 80% of their spending as they age.

The solution, they say, is to work longer. If the median age of retirement were to rise two years, from 62.6 today to 64.1 in 2015, the number of “unprepared” households would be cut in half.

“An increase in the median retirement age of this magnitude may not sound like much, but this is a number that has shifted slowly: Over the three decades from 1970 to 2000, the median retirement age declined by the same amount. So the challenge is to reverse that trend, but at a much more rapid pace.”